FDIC Federal Register Citations

[Federal Register: March 10, 2006 (Volume 71, Number 47)]

[Notices]

[Page 12424-12434]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr10mr06-162]

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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

[Docket No. 06-03]

FEDERAL RESERVE SYSTEM

[Docket No. OP-1240]

FEDERAL DEPOSIT INSURANCE CORPORATION

[RIN 3064-AC97]

Community Reinvestment Act; Interagency Questions and Answers
Regarding Community Reinvestment; Notice

AGENCIES: Office of the Comptroller of the Currency, Treasury (OCC);
Board of Governors of the Federal Reserve

[[Page 12425]]

System (Board); Federal Deposit Insurance Corporation (FDIC).

ACTION: Notice.

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SUMMARY: The OCC, Board, and FDIC (collectively, ``the Agencies'') are
publishing revised guidance (Questions and Answers) relating to the
Community Reinvestment Act (``the Act'' or ``CRA''). The Questions and
Answers primarily addresses topics included in the revisions that the
Agencies made to their CRA regulations, which became effective
September 1, 2005.

DATES: Effecticve Date: March 10, 2006.

FOR FURTHER INFORMATION CONTACT: OCC: Margaret Hesse, Special Counsel,
Community and Consumer Law Division, (202) 874-5750; or Karen Tucker,
National Bank Examiner, Compliance Policy Division, (202) 874-4428,
Office of the Comptroller of the Currency, 250 E Street, SW.,
Washington, DC 20219.
Board: Anjanette M. Kichline, Supervisory Consumer Financial
Services Analyst, (202) 785-6054; Catherine M.J. Gates, Senior
Supervisory Consumer Financial Services Analyst, (202) 452-3946;
Kathleen C. Ryan, Counsel, (202) 452-3667; or Dan S. Sokolov, Counsel,
(202) 452-2412, Division of Consumer and Community Affairs, Board of
Governors of the Federal Reserve System, 20th Street and Constitution
Avenue, NW., Washington, DC 20551.
FDIC: Pamela Freeman, Policy Analyst, (202) 898-6568, CRA and Fair
Lending Policy Section, Division of Supervision and Consumer
Protection; or Susan van den Toorn, Counsel, Legal Division, (202) 898-
8707, Federal Deposit Insurance Corporation, 550 17th Street, NW.,
Washington, DC 20429.

SUPPLEMENTARY INFORMATION:
Background
On August 2, 2005, the OCC, Board, and FDIC published in the
Federal Register a joint final rule revising their Community
Reinvestment Act regulations (70 FR 44256). The joint final rule became
effective September 1, 2005.
The joint final rule addressed regulatory burden on banks with
assets between $250 million and $1 billion by exempting them from CRA
loan data collection and reporting obligations. It also made such
banks, called intermediate small banks, eligible for evaluation under
the small bank lending test and a flexible new community development
test, rather than the lending, investment and service tests that are
used to evaluate larger banks. Holding company affiliation is no longer
a factor in determining which CRA evaluation standards apply to a bank.
The joint final rule also revised the term ``community
development'' to include banks' activities that revitalize or stabilize
designated distressed or underserved nonmetropolitan middle-income
areas or designated disaster areas. Finally, the rule addressed the
impact on a bank's CRA rating of evidence of discrimination or other
credit practices that violate an applicable law, rule, or regulation.
To help financial institutions meet their responsibilities under
the CRA and to increase public understanding of the CRA regulations,
the staffs of the OCC, Board, FDIC, and Office of Thrift Supervision
have previously published answers to the most frequently asked
questions about the community reinvestment regulations of the four
Federal financial regulatory agencies. This guidance has been intended
to provide informal staff guidance for use by examiners and other
agency personnel, financial institutions, and the public, and is
supplemented periodically. The four agencies' Interagency Questions and
Answers Regarding Community Reinvestment (2001 Interagency Questions
and Answers) were last published July 12, 2001 (65 FR 36620).
On November 10, 2005, the staffs of the OCC, Board, and FDIC
jointly published for comment in the Federal Register proposed
Questions and Answers to provide additional guidance specific to the
new OCC, Board, and FDIC rules issued on August 2, 2005, that apply to
their institutions. (Because the OTS's CRA regulation varies from the
OCC's, Board's, and FDIC's CRA regulations, the proposed Questions and
Answers were not, and this final guidance is not, applicable to thrifts
regulated by OTS.)
In response to the Agencies' request for comment on the proposed
Questions and Answers, the OCC received 193 letters, the Board received
182 letters, and the FDIC received 183 letters. Most commenters
submitted letters to all three Agencies. Comment letters were submitted
by community organizations, individuals, banks and financial
institution trade organizations, and state and local governments.
The Agencies carefully considered the comments received. As
discussed below, some of the proposed questions and answers have been
revised in this final guidance to address suggestions by commenters,
while other questions and answers are being adopted as proposed.
The Questions and Answers that are being adopted today are grouped
by the provision of the CRA regulations that they discuss, are
presented in the same order as the regulatory provisions, and employ
the same abbreviated method to cite to the regulations. For example,
the small bank performance standards for national banks appear at 12
CFR 25.26; for Federal Reserve System member banks supervised by the
Board, they appear at 12 CFR 228.26; and for nonmember state banks, at
12 CFR 345.26. Accordingly, the citation in this document would be to
Sec. ----.26. Each question is numbered using a system that consists
of the regulatory citation (as described above) and a number, connected
by a dash. For example, the first question addressing Sec. --
--.12(g)(4) would be identified as Sec. ----.12(g)(4)-1.
As a result of technical changes made to the Agencies' regulations
(70 FR 15570 (March 28, 2005)) and the substantive regulatory revisions
mentioned above (70 FR 44256 (August 2, 2005)), some of the citation
numbering in the 2001 Interagency Questions and Answers does not
correspond to the current section citations of the revised regulations.
In this final guidance, if a reference is made to guidance in the 2001
Interagency Questions and Answers, the number of the question and
answer, as published in the 2001 Interagency Questions and Answers, is
given, even if that reference does not reflect the current regulatory
citation. The Agencies' staffs are working to update the 2001
Interagency Questions and Answers to reflect the revisions to the
regulations made by the three Agencies, as discussed above, and will
correct the citation references in the next publication of the
Interagency Questions and Answers. When the 2001 Interagency Questions
and Answers document is revised and republished later this year, the
Agencies will publish an integrated document containing the questions
and answers that are being published in this final guidance and the
revised 2001 interagency guidance.

Discussion of Final Guidance and Comments Received

All of the questions and answers that were proposed in November are
being adopted today, either as proposed or with revisions. In addition,
one of the proposed questions and answers (Sec. ----.12(g)(4)(iii)-3)
has been divided into two questions and answers for purposes of
clarity.
Sec. ----.12(g)(4)-1:
This proposed question and answer stated that the new definition of
``community development'' applies to all banks, and not to intermediate
small banks only. The Agencies received very

[[Page 12426]]

few comments on this proposed question and answer; all commenters were
in agreement with the proposed guidance. The guidance is adopted as
proposed.
Sec. ----.12(g)(4)-2:
This proposed question and answer addressed whether activities that
provide housing for middle- and upper-income individuals may qualify
for favorable consideration as community development activities when
they help to revitalize or stabilize designated disaster areas or
designated distressed or underserved nonmetropolitan middle-income
geographies. The Agencies received comments primarily from
representatives of community organizations in connection with this
guidance. These commenters opposed aspects of the proposed guidance.
Commenters asserted that projects that provided housing for only
middle- and upper-income individuals should not receive favorable
consideration for CRA purposes in designated disaster areas or
designated distressed nonmetropolitan middle-income geographies even
when such development was part of a bona fide revitalization plan that
would provide long-term benefits to the entire community, such as in
connection with attracting a new employer that would provide jobs to
low- and moderate-income individuals. Some of the community
organization commenters stated that it would be appropriate to provide
favorable consideration to mixed-income housing, which may include
housing for middle- or upper-income individuals. Only one commenter
from an industry trade organization commented on this proposed
guidance. That commenter supported the proposed guidance. No commenters
disagreed with the guidance addressing the provision of housing in
underserved nonmetropolitan middle-income areas.
The Agencies have carefully considered these comments and revised
the proposed question and answer to address the concerns that have been
raised. The question and answer, as adopted, clarifies that an activity
that provides housing for middle- or upper-income individuals qualifies
as an activity that revitalizes or stabilizes a distressed
nonmetropolitan middle-income geography or a designated disaster area
if the housing directly helps to revitalize or stabilize the community
by attracting new, or retaining existing, businesses or residents and,
in the case of a designated disaster area, is related to disaster
recovery. The Agencies generally will consider all activities that
revitalize or stabilize a distressed nonmetropolitan middle-income
geography or designated disaster area, but will give greater weight to
those activities that are most responsive to community needs, including
needs of low- or moderate-income individuals or neighborhoods. Thus,
for example, a loan solely for middle- or upper-income housing in a
community in need of financing for low- and moderate-income housing
would be given very little weight if there is only a short-term benefit
to low- and moderate-income individuals in the community through the
creation of temporary construction jobs. An activity will be presumed
to revitalize or stabilize such a geography or area if the activity is
consistent with a bona fide government revitalization or stabilization
plan or disaster recovery plan.
The portion of the answer addressing underserved nonmetropolitan
middle-income geographies is adopted as proposed.
Sec. ----.12(g)(4)(ii)-1:
This proposed question and answer provided guidance on what is
meant by a ``designated disaster area.'' The proposed guidance stated
that a ``designated disaster area'' would be a disaster area designated
by Federal or state government. The Agencies have further reviewed how,
when, and for what purposes disaster areas are designated. State
disasters or emergencies are usually declared as a prerequisite for
Federal disaster assistance. Thus, the Agencies have determined that
restricting the term ``designated disaster area'' to federally
designated disaster areas would not limit the scope of that term in any
meaningful way. Some Federal disaster area designations are solely for
the purpose of providing short-term public assistance to address debris
removal or emergency protective measures immediately following an
incident--specifically, Federal Emergency Management Agency (FEMA)
Public Assistance Emergency Work Category A (Debris Removal) and
Category B (Emergency Protective Measures). The Agencies believe that
designations for these purposes do not exhibit the type of conditions
that would require sustained disaster recovery-related revitalization
or stabilization activities.
Therefore, based on comments received and information from FEMA
staff, the Agencies are revising the guidance to state that a
``designated disaster area'' is a major disaster area designated by the
Federal government. Such disaster designations include, in particular,
Major Disaster Declarations administered by FEMA, but exclude counties
designated to receive only FEMA Public Assistance Emergency Work
Category A (Debris Removal) and/or Category B (Emergency Protective
Measures).
The proposed guidance also described a ``lag period'' following the
expiration of a ``designated disaster,'' during which a bank's
revitalization and stabilization activities would continue to receive
consideration as community development activities. The Agencies asked
for specific comment on the description of the duration of a designated
disaster and the appropriateness of the proposed lag period.
Most community organization commenters agreed that a one-year lag
period would be appropriate, particularly if a bank's revitalization or
stabilization activity commenced during the duration of the disaster
period. Some other commenters, including some banks and bank trade
organizations, believed a longer lag period, generally three years or
longer, would be appropriate because it often takes a number of years
for a community to recover from the economic impact of a disaster,
particularly a major disaster.
As to the description of the disaster designation, several
community organization commenters and one industry trade organization
commenter believed that the proposed use of the official governmental
designation of the start and expiration of the disaster would be
appropriate. On the other hand, one bank commenter indicated that,
after looking at government Web sites, it was impossible to determine
when a local disaster designation expired. This commenter suggested
that, at a minimum, the Agencies should provide guidance on specific
reference sites where at least the Federal disaster designation
information could be located.
Although FEMA makes a public announcement of a disaster
designation, FEMA generally does not announce an ``expiration'' of the
disaster designation, nor do its regulations provide for the
designation's ``expiration.'' FEMA's regulations and practices entail
different stages relevant to a disaster designation period, such as the
incident period, the application period, the work completion deadlines,
and the period that a joint field office is open, but these periods may
vary from incident to incident, and may not be relevant to all
designated disasters. FEMA's regulations establish a requirement that
permanent public assistance work relating to a major disaster must be
completed within 18 months of the disaster designation (44 CFR
206.204(c)) unless FEMA grants an extension.

[[Page 12427]]

After carefully considering this information and the comments
received, the Agencies have revised the proposed guidance addressing
the period of time that a bank's activities will receive consideration
in a designated disaster area. The final guidance states that the
Agencies have determined to consider disaster recovery-related
activities that help to revitalize or stabilize a designated disaster
area for 36 months following the date of designation by the Federal
government. The Agencies believe that providing a uniform 36-month
period following disaster designation, during which a bank will receive
CRA consideration of disaster recovery-related activities that help to
revitalize or stabilize a disaster area, generally should be adequate
to address the variety of community revitalization or stabilization
needs that may arise depending on the nature, extent and severity of
the particular disaster. Where there is a demonstrable community need
to extend the period for recognizing revitalization or stabilization
activities in a particular disaster area to assist in long-term
recovery efforts, this time period may be extended.
Finally, the Agencies plan to extend substantially the time periods
for recovery-related activities in the Gulf Coast areas designated as
disaster areas because of hurricanes Katrina and Rita beyond 36 months
from the dates of the disaster designations because of the demonstrated
community need for long-term involvement by financial institutions in
helping to address the widespread devastation caused by these
hurricanes.
Sec. ----.12(g)(4)(ii)-2:
This proposed question and answer discussed how revitalization or
stabilization activities in a designated disaster area would be
considered. The proposed guidance stated that bank activities in
designated disaster areas would be evaluated in the same manner as they
would be evaluated in a low- or moderate-income geography or a
designated distressed nonmetropolitan middle-income geography. It
explained that examiners would determine whether the activities have a
primary purpose of community development by helping to attract and
retain residents and businesses (including by providing jobs) or are
part of a bona fide plan to revitalize or stabilize the geography. The
proposed guidance also stated that examiners would give greater weight
to those activities that are most responsive to community needs,
including those of low- or moderate-income individuals or
neighborhoods. The proposed guidance also clarified that investments in
entities that provide community services for, and direct loans and
financial services provided to, individuals in designated disaster
areas and to individuals who are displaced by disasters also receive
consideration under the CRA and cited previous interagency guidance.
Many commenters addressed this proposed guidance. Community
organizations generally urged the Agencies to give the greatest weight
to activities that benefit low- and moderate-income individuals and
neighborhoods.
Two financial institution trade organizations, on the other hand,
emphasized that the entire community, without regard to income, is
affected by most natural disasters and the recovery of the entire
community through housing, job creation, and investments is critical.
These commenters urged the Agencies not to unnecessarily restrict CRA
consideration of recovery-related efforts to those activities that
benefit only low- and moderate-income individuals or communities.
Finally, several commenters favorably addressed the portion of the
answer stating that bank activities that provide assistance to persons
displaced by disasters would receive consideration.
The Agencies have revised this question and answer to address
commenters' concerns and to provide consistent guidance on the
standards that apply to what qualifies as revitalization or
stabilization activities. The revised answer states that the Agencies
generally will consider an activity to revitalize or stabilize a
designated disaster area if it helps to attract new, or retain
existing, businesses or residents and is related to disaster recovery.
An activity will be presumed to revitalize or stabilize the area if the
activity is consistent with a bona fide government revitalization and
stabilization plan or disaster recovery plan. The Agencies generally
will consider all activities related to disaster recovery that
revitalize or stabilize a designated disaster area, but will give
greater weight to those activities that are most responsive to
community needs, including needs of low- or moderate-income individuals
or neighborhoods.
In response to commenters, the question and answer provides
additional examples of activities that will be considered to revitalize
or stabilize a designated disaster area. Qualifying activities may
include, for example, providing financing to help retain businesses in
the area that employ local residents, including low- and moderate-
income individuals; providing financing to attract a major new employer
that will create long-term job opportunities, including for low- and
moderate-income individuals; activities that provide financing or other
assistance for essential community-wide infrastructure, community
services, and rebuilding needs; and activities that provide housing,
financial assistance, and services to individuals in designated
disaster areas and to individuals who have been displaced from those
areas, including low- and moderate-income individuals.
Sec. ----.12(g)(4)(iii)-1:
This proposed question and answer explained what criteria the
Agencies would use to designate nonmetropolitan middle-income
geographies that are ``distressed'' or ``underserved.'' The proposed
guidance also stated that the Agencies will publish data source
information along with the list of designated census tracts on the
Federal Financial Institutions Examination Council (FFIEC) Web site
(http://www.ffiec.gov).

The Agencies received very few comments on this proposed guidance.
One commenter suggested that the distressed areas designated for CRA
purposes should be the same as Community Development Financial
Institution (CDFI) Fund distressed areas. Although the Agencies
considered using CDFI Fund distressed areas, the Agencies learned that
the CDFI Fund designates distressed areas based on data that is not
updated annually. Because data sources are available that provide
updated data annually, the Agencies decided to designate distressed
nonmetropolitan middle-income geographies based on the more current
data.
Another commenter suggested that the criteria used to identify
distressed or underserved areas would serve to exclude needy areas
because they are based on a relatively large geographic unit, the
census tract. This commenter pointed out that rural census tracts are
relatively large and contain a wide variety of types of populations,
with pockets of distress encompassed within relatively better-off
areas. The commenter suggested that basing the distressed or
underserved designation at the block group level, rather than at the
census tract level, would be more effective in identifying distressed
areas. This suggestion is not adopted because the regulation refers to
``distressed or underserved nonmetropolitan middle-income geographies''
(Sec. .----12(g)(4)(iii)), and a ``geography'' is defined in the
Agencies'' regulations as ``a census tract delineated by the United
States Bureau of the Census in the most recent decennial census.''

[[Page 12428]]

The question and answer is adopted as proposed.
Sec. ----.12(g)(4)(iii)-2:
This proposed question and answer stated that the Agencies will
update the list of designated distressed and underserved
nonmetropolitan middle-income geographies annually and will publish the
list on the FFIEC Web site (http://www.ffiec.gov). The Agencies also

proposed a twelve-month ``lag period'' immediately after a census tract
is reclassified as no longer distressed or underserved. During the lag
period, revitalization and stabilization activities would receive
consideration as community development if the activities would have
been considered to have a primary purpose of community development if
the census tract in which they were located were still designated as
distressed or underserved. The Agencies specifically asked for comment
on the appropriateness of the lag period.
The Agencies received several comments on this proposed guidance.
One commenter believed that no lag period was necessary, but if a lag
period were adopted, then one year should be the maximum length
considered. Several commenters believed that a one-year lag period
would be appropriate, while several other commenters, including
representatives of financial institutions, urged the Agencies to
provide a lag period of three or more years.
One commenter asked whether the Agencies would publish the list of
designated distressed or underserved nonmetropolitan middle-income
geographies more frequently than annually. The Agencies will update the
list annually based on annual changes in source data; the list will be
published continuously on the FFIEC Web site.
The proposed question and answer is being adopted with a twelve-
month lag period. In addition, the Agencies will indicate which
designated census tracts are in their lag periods.
Sec. ----.12(g)(4)(iii)-3:
This proposed question and answer explained how revitalization and
stabilization activities in designated distressed or underserved
nonmetropolitan middle-income geographies would be evaluated.
Several commenters asserted that the proposed question and answer
was too complicated because there was one answer for designated
distressed nonmetropolitan middle-income areas and another answer for
designated underserved nonmetropolitan middle-income areas. To help
clarify the guidance, the issues are addressed in separate questions
and answers--one addressing designated distressed nonmetropolitan
middle-income areas (Sec. ----.12(g)(4)(iii)-3), and the other
addressing designated underserved nonmetropolitan middle-income areas
(Sec. ----.12(g)(4)(iii)-4).
As proposed, in designated distressed nonmetropolitan middle-income
geographies, examiners would determine whether the activities have a
primary purpose of community development by helping to attract and
retain residents and businesses (including by providing jobs) or are
part of a bona fide plan to revitalize or stabilize the geography. The
activities must have had a long-term direct benefit to the entire
community, including low- and moderate-income individuals and
neighborhoods.
Similar to the comments addressing the proposed guidance dealing
with revitalization or stabilization activities in designated disaster
areas, some community organization commenters were concerned that not
enough emphasis was placed on benefits to low- and moderate-income
individuals in designated distressed nonmetropolitan middle-income
geographies. The question and answer as adopted revises and clarifies
the guidance addressing revitalization or stabilization activities in
distressed nonmetropolitan middle-income geographies to make it
consistent with the similar guidance applicable to banks'
revitalization and stabilization activities in designated disaster
areas. The guidance specifically states that examiners will give
greater weight to those activities that are most responsive to
community needs, including the needs of low-or moderate-income
individuals or neighborhoods.
The proposed guidance addressing evaluation of revitalization or
stabilization activities in underserved nonmetropolitan middle-income
geographies stated that bank activities that facilitate the
construction, expansion, improvement, maintenance, or operation of
essential infrastructure or facilities for health services, education,
public safety, public services, industrial parks, or affordable housing
generally would be considered to meet essential community needs and
qualify for consideration as a community development activity, so long
as the infrastructure, facility, or affordable housing serves low- and
moderate-income individuals. One commenter asked how much benefit to
low-or moderate-income individuals there must be for an activity in an
underserved nonmetropolitan middle-income area to qualify for
consideration. Another commenter suggested that a significant
percentage of the people that benefit from the activity should be low-
or moderate-income. Other commenters suggested that the Agencies should
give more weight to revitalization or stabilization activities that
benefit low-or moderate-income individuals in underserved
nonmetropolitan middle-income geographies.
The question and answer has been revised to include a restatement
of the standard that appears in the regulations, that is, that
activities revitalize or stabilize an underserved nonmetropolitan
middle-income geography if they help to meet essential community needs,
including the needs of low-or moderate-income individuals. Activities
such as financing for the construction, expansion, improvement,
maintenance, or operation of essential infrastructure or facilities for
health services, education, public safety, public services, industrial
parks, or affordable housing, will be evaluated under these criteria to
determine if they qualify for revitalization or stabilization
consideration.
Sec. ----.12(i)-3:
The proposal would have revised the existing question and answer
from the 2001 Interagency Questions and Answers, which lists examples
of community development services, to add two new examples. The first
new example stated that providing financial services to low-or
moderate-income individuals through branches and other facilities in
low-or moderate-income areas is a community development service (unless
the provision of such services has been considered in the evaluation of
a bank's retail banking services under Sec. ----.24(d)).
Commenters were generally in favor of this revision and the
Agencies are adopting this revision as proposed.
The second example of a community development service that was
proposed was providing international remittances services that increase
access to financial services by low- and moderate-income persons (for
example, by offering reasonably priced international remittances
services in connection with a low-cost account). Commenters were
generally in favor of this proposed revision. Therefore, the revision
to this guidance is adopted as proposed.
Sec. ----.12(t)-1:
This proposed question and answer addressed consideration for
prior-period investments when examiners evaluate qualified investments.
It stated that examiners would consider investments that were made
prior to the current examination, but are still outstanding.
Qualitative factors would affect the weight given to both current
period and

[[Page 12429]]

outstanding prior-period qualified investments.
Several community organizations and affiliates of community
organizations commented on this proposed guidance. These commenters
stressed that banks should not be able to compensate for low levels of
current-period qualified investments with prior-period investments.
Some of these commenters also believed that consideration of prior
period investments should be limited to investments that are
particularly innovative, complex, or responsive to community needs.
The guidance is adopted as proposed. Although prior-period
investments may receive consideration in a bank's current evaluation,
examiners typically distinguish between current-period and prior-period
investments when listing the amounts of a bank's investments in the
institution's performance evaluation. Further, examiners use
qualitative factors to determine how much consideration a bank receives
for any given qualified investment. Greater weight is given to
investments that are responsive to community needs, innovative, or
complex, as applicable.
One commenter stated that this guidance should apply to all sizes
and types of banks because some investments not only have significant
impact, they also continue to utilize bank assets and represent a
continuing financial commitment by the bank to the community. This
question and answer clarifies that the guidance applies to all banks.
Sec. ----.12(t)-4:
The proposal would have added investments in Rural Business
Investment Companies to the question and answer from the 2001
Interagency Questions and Answers that lists examples of qualified
investments. The Agencies received only a few comments on this
proposal. All of the comments favored the proposed addition. Therefore,
the guidance is adopted as proposed.
Sec. ----.12(u)(2)-1:
This proposed question and answer stated that adjustments to the
asset-size thresholds for small banks and intermediate small banks will
be made annually based on changes to the Consumer Price Index. It also
stated that changes in the asset-size thresholds would be published in
the Federal Register.
The Agencies received very few comments on this proposed guidance.
One financial institution trade organization commented that publication
of adjustments in the Federal Register is important.
The question and answer is adopted as proposed.
Sec. ----.26-1:
This proposed question and answer stated that, when evaluating a
small bank or intermediate small bank, examiners will consider, at the
bank's request, retail and community development loans originated or
purchased by an affiliate, qualified investments made by an affiliate,
or community development services provided by an affiliate. The bank
must maintain sufficient information so that examiners may evaluate
these activities under the appropriate performance criteria and ensure
that another institution does not claim the activities. The constraints
applicable to affiliate activities claimed by large institutions would
also apply to affiliate activities claimed by small banks and
intermediate small banks. In addition, examiners would not include
affiliate lending in calculating the percentage of loans and, as
appropriate, other lending-related activities located in a bank's
assessment area.
Very few comments addressing this proposed guidance were received.
All comments were favorable. Although the question has been rephrased
for purposes of clarity, the answer is adopted as proposed.
Sec. ----.26(c)-1:
This proposed question and answer discussed how the community
development test would be applied flexibly for intermediate small
banks. It described how intermediate small banks engage in a
combination of community development loans, qualified investments, and
community development services that are evaluated under the community
development test. It stated that a bank may not simply ignore one or
more of these categories of community development, nor do the
regulations prescribe a required threshold for community development
loans, qualified investments, or community development services. A bank
would have the flexibility to allocate its resources among community
development loans, qualified investments, and community development
services in amounts it reasonably determines are most responsive to
community development needs and opportunities.
The Agencies received several letters commenting on this proposed
guidance. Most of the comments were from community organizations,
although a few were from financial industry trade organizations.
Community organization commenters agreed that intermediate small
banks should not ignore any category of community development
activities. Many of these commenters expressed concern that qualitative
factors, such as those considered in a bank's performance context,
would be used to excuse low levels of community development lending,
qualified investments, or community development services. One bank
trade organization, on the other hand, asserted that appropriate levels
of each type of community development activity would depend on the
bank, the community, and the local needs and opportunities.
A number of community organization commenters discussed the
difference between community needs and opportunities for community
development activities. Generally, these commenters stressed that
community needs, rather than opportunities for engaging in community
development activities, must be the main consideration.
The question and answer is adopted as proposed. The guidance
provides appropriate balance between the flexibility of banks to
allocate their resources in a manner that is most responsive to
community needs with the expectation that banks will engage in
community development activities (loans, investments, and services)
consistent with those needs and opportunities.
One financial institution trade organization expressed concern that
the proposed guidance imposed a ``needs assessment'' requirement on
intermediate small banks. The Agencies do not intend that intermediate
small banks prepare a particular ``needs assessment'' solely for
purposes of its CRA evaluation under the community development test. If
intermediate small banks prepare business plans and market analyses
that reflect community needs and opportunities, they may rely on such
information, as well as other currently available information, when
assessing community development needs in their assessment areas.
Sec. ----.26(c)(3)-1:
This proposed question and answer stated that examiners will
consider not only the types of services provided to benefit low- and
moderate-income individuals, but also the provision and availability of
services to low- and moderate-income individuals, including through
branches and other facilities located in low- and moderate-income
areas.
A large number of letters from community organizations commented on
this proposed guidance. Most of these commenters asserted that
intermediate small banks should be

[[Page 12430]]

evaluated on the number and percent of branches located in low- and
moderate-income geographies. The revised regulations do not include a
retail banking service test for intermediate small banks that evaluates
the number and percent of an intermediate small bank's branches located
in low- and moderate-income geographies.
However, in response to the commenters, the guidance is being
revised to clarify that the presence of branches located in low- and
moderate-income geographies helps to demonstrate the availability of
banking services to low- and moderate-income individuals.
Sec. ----.26(c)(4)-1:
This proposed question and answer discussed what examiners would
consider when reviewing the responsiveness of community development
lending, qualified investments, and community development services by
an intermediate small bank to the community development needs of the
area. It stated that, in addition to quantitative measures such as the
number and amount of community development loans, qualified
investments, and community development services, examiners would also
consider qualitative aspects of performance. In particular, examiners
would evaluate the responsiveness of the bank's community development
activities in light of the bank's capacity, business strategy, the
needs of the community, and the number and types of opportunities for
each type of community development activity. The proposed guidance also
stated that activities would be considered particularly responsive to
community development needs if they benefit low- and moderate-income
individuals in low- and moderate-income areas, designated disaster
areas, or designated distressed or underserved nonmetropolitan middle-
income geographies.
Only a few commenters addressed this proposed guidance. Most of
these comments were generally in agreement with the proposed question
and answer. One commenter was concerned, however, that qualitative
factors might be used to explain a bank's low numbers and amounts of
community development activities and that ``lack of opportunity'' may
be used to excuse limited performance even when community needs exist.
The question and answer is adopted as proposed. Agency examiners
will apply the qualitative factors in the context of intermediate small
banks in a manner that appropriately considers the needs of the
community, as well as other relevant information, including the
expertise of the bank, its business plan, the bank's capacity, and any
constraints that would prevent the bank from engaging in community
development activities.

Other Comments

The Agencies requested comments on any issues raised by the CRA and
the 2001 Interagency Questions and Answers. Commenters provided
comments on a number of topics that were unrelated to the proposed
questions and answers. The Agencies' staffs will consider these
comments in their general review of the 2001 Interagency Questions and
Answers.
The Agencies received a number of comments suggesting specific
types of investments and services that should be listed in the
questions and answers as examples of qualified investments and
community development services. The Agencies will consider these
suggestions during their general update of the 2001 Interagency
Questions and Answers.
One issue that the Agencies anticipate addressing in proposed
revisions to the 2001 Interagency Questions and Answers concerns
whether intermediate small banks' small business loans, small farm
loans, or home mortgage loans may be considered as community
development loans, if the loans have a primary purpose of ``community
development,'' as that term is defined in the regulations. Under the
regulations' definition of ``community development loan,'' a loan that
has been reported as a small business loan or small farm loan as
required by the CRA regulations, or as a mortgage loan under the Home
Mortgage Disclosure Act (HMDA), is not a community development loan,
even if the loan has a primary purpose of community development. Small
banks, however, are not required by the CRA regulations to report small
business loans or small farm loans; and some small banks, as well as
some large banks, are not required by HMDA to report home mortgage
loans. Thus, after the definition of ``community development loan'' was
adopted, a question arose as to its application to banks that are not
required to report home mortgage loans, small business loans, or small
farm loans. In response to that question, the Agencies adopted Q&A
Sec. Sec. ----.12(i) & 563e.12(h)-2, which indicates that examiners
will not consider a loan by a small bank that meets the definition of
either a ``small business loan'' or a ``small farm loan'' as a
community development loan regardless of the purpose of the loan, even
though the regulation does not require a small bank to report small
business or small farm loans. Similarly, the question and answer also
states that examiners will not treat any loan that meets the definition
of a HMDA-reportable mortgage loan as a community development loan even
if the bank that made the loan is not required by HMDA to report
mortgage loans (with the exception of multifamily dwelling loans). The
Agencies anticipate that they will seek comment on whether this
guidance is appropriate for intermediate small banks, which, unlike
large banks, are not required to report small business or small farm
loans and, unless they opt to be evaluated as large banks, have their
community development activities, including community development
loans, evaluated in a separate community development test. Meanwhile,
evaluations of small banks, including intermediate small banks, will
continue to be governed by the guidance in Q&A Sec. Sec. ----.12(i) &
563e.12(h)-2.

Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA)

The SBREFA requires an agency, for each rule for which it prepares
a final regulatory flexibility analysis, to publish one or more
compliance guides to help small entities understand how to comply with
the rule.
Pursuant to section 605(b) of the Regulatory Flexibility Act, the
OCC and FDIC certified that their proposed CRA rule would not have a
significant economic impact on a substantial number of small entities
and invited comments on that determination. The Board did not so
certify, and requested comments in several areas. See 70 FR 12148,
12154 (March 11, 2005). In connection with the joint final rule, the
FDIC and OCC certified that the joint final rule would not have a
significant impact on a substantial number of small entities. In
response to public comments it received, the Board prepared a final
regulatory flexibility analysis and described how the final rule
minimizes the economic impact on small entities by making the twelve
affected state member banks eligible for the streamlined CRA process.
See 70 FR at 44264-65 (August 2, 2005).
In accordance with section 212 of the SBREFA and the Agencies'
continuing efforts to provide clear, understandable regulations, staffs
of the Agencies have compiled these interagency Questions and Answers.
The interagency Questions and Answers serve the same purpose as the
compliance guide described in the SBREFA by providing

[[Page 12431]]

guidance on a variety of issues of particular concern to small banks.
The text of the Interagency Questions and Answers Regarding
Community Reinvestment follows:
Sec. ----.12(g)(4) Activities That Revitalize or Stabilize--
Sec. ----.12(g)(4)-1: Is the revised definition of community
development, effective September 1, 2005, applicable to all banks or
only to intermediate small banks?
A1: The revised definition of community development is applicable
to all banks.
Sec. .----12(g)(4)-2: Will activities that provide housing for
middle-income and upper-income persons qualify for favorable
consideration as community development activities when they help to
revitalize or stabilize a distressed or underserved nonmetropolitan
middle-income geography or designated disaster areas?
A2: An activity that provides housing for middle- or upper-income
individuals qualifies as an activity that revitalizes or stabilizes a
distressed nonmetropolitan middle-income geography or a designated
disaster area if the housing directly helps to revitalize or stabilize
the community by attracting new, or retaining existing, businesses or
residents and, in the case of a designated disaster area, is related to
disaster recovery. The Agencies generally will consider all activities
that revitalize or stabilize a distressed nonmetropolitan middle-income
geography or designated disaster area, but will give greater weight to
those activities that are most responsive to community needs, including
needs of low- or moderate-income individuals or neighborhoods. Thus,
for example, a loan solely to develop middle- or upper-income housing
in a community in need of low- and moderate-income housing would be
given very little weight if there is only a short-term benefit to low-
and moderate-income individuals in the community through the creation
of temporary construction jobs. (A housing-related loan is not
evaluated as a ``community development loan'' if it has been reported
or collected by the institution or its affiliate as a home mortgage
loan, unless it is a multifamily dwelling loan. See Sec. --
--.12(i)(2)(i) and Q&A Sec. Sec. ----.12(i) & 563e.12(h)-2.) An
activity will be presumed to revitalize or stabilize such a geography
or area if the activity is consistent with a bona fide government
revitalization or stabilization plan or disaster recovery plan. See
Q&As Sec. Sec. ----.12(h)(4) & 563e.12(g)(4)-1 and Sec. Sec. --
--.12(i) & 563e.12(h)-4.
In underserved nonmetropolitan middle-income geographies,
activities that provide housing for middle- and upper-income
individuals may qualify as activities that revitalize or stabilize such
underserved areas if the activities also provide housing for low- or
moderate-income individuals. For example, a loan to build a mixed-
income housing development that provides housing for middle- and upper-
income individuals in an underserved nonmetropolitan middle-income
geography would receive positive consideration if it also provides
housing for low- or moderate-income individuals.
Sec. ----.12(g)(4)(ii) Activities That Revitalize or Stabilize
Designated Disaster Areas.
Sec. .----12(g)(4)(ii)-1: What is a ``designated disaster area''
and how long does it last?
A1: A ``designated disaster area'' is a major disaster area
designated by the Federal Government. Such disaster designations
include, in particular, Major Disaster Declarations administered by the
Federal Emergency Management Agency (FEMA) (http://www.fema.gov ), but

excludes counties designated to receive only FEMA Public Assistance
Emergency Work Category A (Debris Removal) and/or Category B (Emergency
Protective Measures).
Examiners will consider bank activities related to disaster
recovery that revitalize or stabilize a designated disaster area for 36
months following the date of designation. Where there is a demonstrable
community need to extend the period for recognizing revitalization or
stabilization activities in a particular disaster area to assist in
long-term recovery efforts, this time period may be extended.
Sec. ----.12(g)(4)(ii)-2 : What activities are considered to
``revitalize or stabilize'' a designated disaster area, and how are
those activities considered?
A2: The Agencies generally will consider an activity to revitalize
or stabilize a designated disaster area if it helps to attract new, or
retain existing, businesses or residents and is related to disaster
recovery. An activity will be presumed to revitalize or stabilize the
area if the activity is consistent with a bona fide government
revitalization or stabilization plan or disaster recovery plan. The
Agencies generally will consider all activities relating to disaster
recovery that revitalize or stabilize a designated disaster area, but
will give greater weight to those activities that are most responsive
to community needs, including the needs of low- or moderate-income
individuals or neighborhoods. Qualifying activities may include, for
example, providing financing to help retain businesses in the area that
employs local residents, including low- and moderate-income
individuals; providing financing to attract a major new employer that
will create long-term job opportunities, including for low- and
moderate-income individuals; providing financing or other assistance
for essential community-wide infrastructure, community services, and
rebuilding needs; and activities that provide housing, financial
assistance, and services to individuals in designated disaster areas
and to individuals who have been displaced from those areas, including
low- and moderate-income individuals (see, e.g., Q&As Sec. ----.12(j)
& 563e.12(i)-3; Sec. ----.12(s) & 563e.12(r)-4; Sec. ----.22(b)(2) &
(3)-4; Sec. ----.22(b)(2) & (3)-5; and Sec. ----.24(d)(3)-1).
Sec. ----.12(g)(4)(iii) Activities That Revitalize or Stabilize
Distressed or Underserved Nonmetropolitan Middle-income Geographies.
Sec. ----.12(g)(4)(iii)-1: What criteria are used to identify
distressed or underserved nonmetropolitan middle-income geographies?
A1: Eligible nonmetropolitan middle-income geographies are those
designated by the Agencies as being in distress or that could have
difficulty meeting essential community needs (underserved). A
particular geography could be designated as both distressed and
underserved. As defined in Sec. ----.12(k), a geography is a census
tract delineated by the United States Bureau of the Census.
A nonmetropolitan middle-income geography will be designated as
distressed if it is in a county that meets one or more of the following
triggers: (1) An unemployment rate of at least 1.5 times the national
average, (2) a poverty rate of 20 percent or more, or (3) a population
loss of 10 percent or more between the previous and most recent
decennial census or a net migration loss of five percent or more over
the five-year period preceding the most recent census.
A nonmetropolitan middle-income geography will be designated as
underserved if it meets criteria for population size, density, and
dispersion that indicate the area's population is sufficiently small,
thin, and distant from a population center that the tract is likely to
have difficulty financing the fixed costs of meeting essential
community needs. The Agencies will use as the basis for these
designations the ``urban influence codes,'' numbered ``7,'' ``10,''
``11,'' and ``12,'' maintained by the Economic Research Service of the

[[Page 12432]]

United States Department of Agriculture.
The Agencies will publish data source information along with the
list of eligible nonmetropolitan census tracts on the Federal Financial
Institutions Examination Council Web site (http://www.ffiec.gov ).

Sec. ----.12(g)(4)(iii)-2: How often will the Agencies update the
list of designated distressed and underserved nonmetropolitan middle-
income geographies?
A2: The Agencies will review and update the list annually as
needed. The list will be published on the Federal Financial
Institutions Examination Council Web site (http://www.ffiec.gov ).

To the extent that changes to the designated census tracts occur,
the Agencies have determined to adopt a one-year ``lag period.'' This
lag period will be in effect for the twelve months immediately
following the date when a census tract that was designated as
distressed or underserved is removed from the designated list.
Revitalization or stabilization activities undertaken during the lag
period will receive consideration as community development activities
if they would have been considered to have a primary purpose of
community development if the census tract in which they were located
were still designated as distressed or underserved.
Sec. ----.12(g)(4)(iii)-3: What activities are considered to
``revitalize or stabilize'' a distressed nonmetropolitan middle-income
geography, and how are those activities evaluated?
A3: An activity revitalizes or stabilizes a distressed
nonmetropolitan middle-income geography if it helps to attract new, or
retain existing, businesses or residents. An activity will be presumed
to revitalize or stabilize the area if the activity is consistent with
a bona fide government revitalization or stabilization plan. The
Agencies generally will consider all activities that revitalize or
stabilize a distressed nonmetropolitan middle-income geography, but
will give greater weight to those activities that are most responsive
to community needs, including needs of low- or moderate-income
individuals or neighborhoods. Qualifying activities may include, for
example, providing financing to attract a major new employer that will
create long-term job opportunities, including for low- and moderate-
income individuals, and activities that provide financing or other
assistance for essential infrastructure or facilities necessary to
attract or retain businesses or residents. See Q&As Sec. Sec. --
--.12(h)(4) & 563e.12(g)(4)-1 and Sec. Sec. ----.12(i) and 563e.12(h)-
4.
Sec. ----.12(g)(4)(iii)-4: What activities are considered to
``revitalize or stabilize'' an underserved nonmetropolitan middle-
income geography, and how are those activities evaluated?
A4: The regulation provides that activities revitalize or stabilize
an underserved nonmetropolitan middle-income geography if they help to
meet essential community needs, including needs of low- or moderate-
income individuals. Activities such as financing for the construction,
expansion, improvement, maintenance, or operation of essential
infrastructure or facilities for health services, education, public
safety, public services, industrial parks, or affordable housing, will
be evaluated under these criteria to determine if they qualify for
revitalization or stabilization consideration. Examples of the types of
projects that qualify as meeting essential community needs, including
needs of low- or moderate-income individuals, would be a new or
expanded hospital that serves the entire county, including low- and
moderate-income residents; an industrial park for businesses whose
employees include low- or moderate-income individuals; a new or
rehabilitated sewer line that serves community residents, including
low- or moderate-income residents; a mixed-income housing development
that includes affordable housing for low- and moderate-income families;
or a renovated elementary school that serves children from the
community, including children from low- and moderate-income families.
Other activities in the area, such as financing a project to build a
sewer line spur that connects services to a middle- or upper-income
housing development while bypassing a low- or moderate-income
development that also needs the sewer services, generally would not
qualify for revitalization or stabilization consideration in
geographies designated as underserved. However, if an underserved
geography is also designated as distressed or a disaster area,
additional activities may be considered to revitalize or stabilize the
geography, as explained in Q&As Sec. ----.12(g)(4)(ii)-2 and Sec. --
--.12(g)(4)(iii)-3.
Sec. ----.12(i) Community Development Service
Sec. ----.12(i)-3: What are examples of community development
services?
A3: Examples of community development services include, but are not
limited to:
Providing financial services to low- and moderate-income
individuals through branches and other facilities located in low- and
moderate-income areas, unless the provision of such services has been
considered in the evaluation of a bank's retail banking services under
Sec. ----.24(d);
Providing technical assistance on financial matters to
nonprofit, tribal or government organizations serving low- and
moderate-income housing or economic revitalization and development
needs;
Providing technical assistance on financial matters to
small businesses or community development organizations, including
organizations and individuals who apply for loans or grants under the
Federal Home Loan Banks' Affordable Housing Program;
Lending employees to provide financial services for
organizations facilitating affordable housing construction and
rehabilitation or development of affordable housing;
Providing credit counseling, home-buyer and home-
maintenance counseling, financial planning or other financial services
education to promote community development and affordable housing;
Establishing school savings programs and developing or
teaching financial education curricula for low- or moderate-income
individuals;
Providing electronic benefits transfer and point of sale
terminal systems to improve access to financial services, such as by
decreasing costs, for low- or moderate-income individuals;
Providing international remittances services that increase
access to financial services by low- and moderate-income persons (for
example, by offering reasonably priced international remittances
services in connection with a low-cost account); and
Providing other financial services with the primary
purpose of community development, such as low-cost bank accounts,
including ``Electronic Transfer Accounts'' provided pursuant to the
Debt Collection Improvement Act of 1996, or free government check
cashing that increases access to financial services for low- or
moderate-income individuals.
Examples of technical assistance activities that might be provided
to community development organizations include:
Serving on a loan review committee;
Developing loan application and underwriting standards;
Developing loan processing systems;
Developing secondary market vehicles or programs;

[[Page 12433]]

Assisting in marketing financial services, including
development of advertising and promotions, publications, workshops and
conferences;
Furnishing financial services training for staff and
management;
Contributing accounting/bookkeeping services; and
Assisting in fund raising, including soliciting or
arranging investments.
Sec. ----.12(t) Qualified Investment
Sec. ----.12(t)-1: When evaluating a qualified investment, what
consideration will be given for prior-period investments?
A1: When evaluating a bank's qualified investment record, examiners
will consider investments that were made prior to the current
examination, but that are still outstanding. Qualitative factors will
affect the weighting given to both current period and outstanding
prior-period qualified investments. For example, a prior-period
outstanding investment with a multi-year impact that addresses
assessment area community development needs may receive more
consideration than a current period investment of a comparable amount
that is less responsive to area community development needs.
Sec. ----.12(t)-4: What are examples of qualified investments?
A4. Examples of qualified investments include, but are not limited
to, investments, grants, deposits or shares in or to:
Financial intermediaries (including, Community Development
Financial Institutions (CDFIs), Community Development Corporations
(CDCs), minority- and women-owned financial institutions, community
loan funds, and low-income or community development credit unions) that
primarily lend or facilitate lending in low- or moderate-income areas
or to low- and moderate-income individuals in order to promote
community development, such as a CDFI that promotes economic
development on an Indian reservation;
Organizations engaged in affordable housing rehabilitation
and construction, including multifamily rental housing;
Organizations, including for example, Small Business
Investment Companies (SBICs), specialized SBICs, and Rural Business
Investment Companies (RBICs), that promote economic development by
financing small businesses;
Facilities that promote community development in low- and
moderate-income areas for low- and moderate-income individuals, such as
youth programs, homeless centers, soup kitchens, health care
facilities, battered women's centers, and alcohol and drug recovery
centers;
Projects eligible for low-income housing tax credits;
State and municipal obligations, such as revenue bonds,
that specifically support affordable housing or other community
development;
Not-for-profit organizations serving low- and moderate-
income housing or other community development needs, such as counseling
for credit, home-ownership, home maintenance, and other financial
services education; and
Organizations supporting activities essential to the
capacity of low- and moderate-income individuals or geographies to
utilize credit or to sustain economic development, such as, for
example, day care operations and job training programs that enable
people to work.
Sec. ----.12(u)(2): Small Bank Adjustment
Sec. ----.12(u)(2)-1: How often will the asset size thresholds for
small banks and intermediate small banks be changed, and how will these
adjustments be communicated?
A1: The asset size thresholds for ``small banks'' and
``intermediate small banks'' will be adjusted annually based on changes
to the Consumer Price Index. More specifically, the dollar thresholds
will be adjusted annually based on the year-to-year change in the
average of the Consumer Price Index for Urban Wage Earners and Clerical
Workers, not seasonally adjusted for each twelve-month period ending in
November, with rounding to the nearest million. Any changes in the
asset size thresholds will be published in the Federal Register.
Sec. ----.26: Small Bank Performance Standards
Sec. ----.26-1: When evaluating a small or intermediate small
bank's performance, will examiners consider, at the institution's
request, retail and community development loans originated or purchased
by affiliates, qualified investments made by affiliates, or community
development services provided by affiliates?
A1: Yes. However, a small institution that elects to have examiners
consider affiliate activities must maintain sufficient information that
the examiners may evaluate these activities under the appropriate
performance criteria and ensure that the activities are not claimed by
another institution. The constraints applicable to affiliate activities
claimed by large institutions also apply to small and intermediate
small institutions. See Q&A Sec. ----.22(c)(2) and related guidance
provided to large institutions regarding affiliate activities.
Examiners will not include affiliate lending in calculating the
percentage of loans and, as appropriate, other lending-related
activities located in a bank's assessment area.
Sec. ----.26(c) Intermediate Small Bank Community Development Test
Sec. ----.26(c)-1: How will the community development test be
applied flexibly for intermediate small banks?
A1: Generally, intermediate small banks engage in a combination of
community development loans, qualified investments, and community
development services. A bank may not simply ignore one or more of these
categories of community development, nor do the regulations prescribe a
required threshold for community development loans, qualified
investments, and community development services. Instead, based on the
bank's assessment of community development needs in its assessment
area(s), it may engage in different categories of community development
activities that are responsive to those needs and consistent with the
bank's capacity.
An intermediate small bank has the flexibility to allocate its
resources among community development loans, qualified investments, and
community development services in amounts that it reasonably determines
are most responsive to community development needs and opportunities.
Appropriate levels of each of these activities would depend on the
capacity and business strategy of the bank, community needs, and number
and types of opportunities for community development.
Sec. ----.26(c)(3) Community Development Services under
Intermediate Small Bank Community Development Test
Sec. ----.26(c)(3)-1: What will examiners consider when evaluating
the provision of community development services by an intermediate
small bank?
A1: Examiners will consider not only the types of services provided
to benefit low- and moderate-income individuals, such as low-cost bank
checking accounts and low-cost remittance services, but also the
provision and availability of services to low- and moderate-income
individuals, including through branches and other facilities located in
low- and moderate-income areas. Generally, the presence of branches
located in low- and moderate-income geographies will help to
demonstrate the availability of banking services to low- and moderate-
income individuals.
Sec. ----.26(c)(4) Responsiveness to Community Development Needs
under

[[Page 12434]]

Intermediate Small Bank Community Development Test
Sec. ----.26(c)(4)-1: When evaluating an Intermediate Small Bank's
community development record, what will examiners consider when
reviewing the responsiveness of community development lending,
qualified investments, and community development services to the
community development needs of the area?
A1: When evaluating an Intermediate Small Bank's community
development record, examiners will consider not only quantitative
measures of performance, such as the number and amount of community
development loans, qualified investments, and community development
services, but also qualitative aspects of performance. In particular,
examiners will evaluate the responsiveness of the bank's community
development activities in light of the bank's capacity, business
strategy, the needs of the community, and the number and types of
opportunities for each type of community development activity (its
performance context). Examiners also will consider the results of any
assessment by the institution of community development needs, and how
the bank's activities respond to those needs.
An evaluation of the degree of responsiveness considers the
following factors: The volume, mix, and qualitative aspects of
community development loans, qualified investments, and community
development services. Consideration of the qualitative aspects of
performance recognizes that community development activities sometimes
require special expertise or effort on the part of the institution or
provide a benefit to the community that would not otherwise be made
available. (However, ``innovativeness'' and ``complexity,'' factors
examiners consider when evaluating a large bank under the lending,
investment, and service tests, are not criteria in the intermediate
small banks' community development test.) In some cases, a smaller loan
may have more qualitative benefit to a community than a larger loan.
Activities are considered particularly responsive to community
development needs if they benefit low- and moderate-income individuals
in low- or moderate-income geographies, designated disaster areas, or
distressed or underserved nonmetropolitan middle-income geographies.
Activities are also considered particularly responsive to community
development needs if they benefit low- or moderate-income geographies.
This concludes the text of the Interagency Questions and Answers
Regarding Community Reinvestment.

Dated: March 1, 2006.
John C. Dugan,
Comptroller of the Currency.

By order of the Board of Governors of the Federal Reserve
System, March 1, 2006.
Jennifer J. Johnson,
Secretary of the Board.

Dated at Washington, DC, this second day of March, 2006.

Federal Deposit Insurance Corporation.
Valerie J. Best,
Assistant Executive Secretary.
[FR Doc. 06-2188 Filed 3-9-06; 8:45 am]